The Rosenbaum Law Firm P.C. Blog

As I’ve stated before, I wouldn’t hire employees because I was an employee once too. That pretty much means that I never met an employee whoever thought they were overpaid. For that matter, I never met an employer who thought that they pay their employees too little.

Despite what my former colleagues at union side law firms think, employers typically don’t have a treasure chest of jewels they’re keeping away from their employees, it’s just the dynamic of a relationship where an employee wants to make as much as they can and an employer wants to pay as little as possible. It’s not evil, just human nature.

For those that never ran a business, they don’t understand how costs of payroll and benefits must be tied to revenue because an employer’s pocketbook is not limitless.

Thanks to medical costs and taxes, it’s expensive to have employees. Employers are taking away benefits and not putting benefits out there that are really enticing to current and prospective employees. As an employee, regardless of where I worked, the health plan got worse and worse because medical costs are spiraling out of control and the employer had to rein in costs.

While employers may feel free to cut back on the benefits they offer, the one benefit that they can’t afford to neglect is a retirement plan. An employer can certainly cut back on the contributions they make to their retirement plan(s), but they can’t just cut back on the services to their plan by sticking the plan with a cheap provider (if they are the ones paying for administration, rather than the plan) if it’s going to negatively affect the plan’s administration and compliance.

The reason is because employers as plan sponsors are also plan fiduciaries too. So employers still may want to cut back on benefits, they need to make sure that they don’t do something that could negatively impact their role as plan fiduciaries.

Any change of plan provider or even in a change in benefits should be done in consultation with your plan providers and/or ERISA attorney to make sure that any cutbacks in benefits you must make won’t increase your plan fiduciary liability exposure.

One of the big parts of my practice is assisting third-party administrators (TPAs) who can’t or don’t want to afford an ERISA attorney on staff.

I recently had to answer correspondence regarding the payout of a participant who was deceased and still required to take out the required minimum distribution (RMD). The beneficiaries of the deceased claim that the TPA advised them that they could take the RMD and roll it over. The only problem is that the law won’t allow them to do it.

The initial response by the TPA wasn’t wrong, it was just full of a lot of jargon that really didn’t fully answer the beneficiaries’ concerns. I helped with the second response and just fully explained that no matter what they were told they could not rollover an RMD because it’s not an eligible rollover distribution. Rather than go through a lot of words, it’s just a lot easier to tell them straight and just tell then what they can and can’t do with the deceased participant’s benefit.

A Long Island business newspaper once named my old law firm’s administrator as its Chief Financial Officer of the year and the first thing I asked at the time was: “How big was the ad?”

That’s because my old law firm was a regular advertiser for this publication and I appeared in it a handful of times when I was there and I’m sure because my firm helped pay that newspaper’s bills. Maybe that law firm administrator is a really great CFO, I only thought his expertise was self-promotion.

The point is not to make fun of Right-Said Fred, but the point is that awards and recognition can be bought and sold.

So when looking for plan providers as a plan sponsor, don’t be over wowed by some of these publication awards like the “100 Most Important People in the 401(k) industry” or some unknown certification because these credentials can be bought and sold.

If you don’t know the criteria for selection or the group of selecting it, you have no idea if the award or credential is real or not. It’s like Kosher food; there are now over 400+ different organizations that certify Kosher food. If you are an observant Jew, you’re not going to eat something certified by an agency where you have no idea who is doing the certification because some Rabbis are less reputable than others.

So when a plan provider is giving you their credentials and there are some credentials that aren’t from an organization you heard of, take it with a grain of salt or do some digging to determine whether that credential means something or not.

Otherwise, you may be stuck with a CFO who claims he’ll help your practice, except he’s too busy writing articles about his work and using law firm resources to publish them.

A few years back, a good friend of mine who is an ERISA §3(38) fiduciary won a case from a disgruntled broker who claimed that all 3(38) services were just marketing. A 3(38) fiduciary that does a competent job and assumes discretionary control over the plan’s fiduciary process is more than marketing. But it’s a gimmick.

Hear me out, every service and every feature that a plan provider advertises is a gimmick. Now, there is nothing wrong with being a gimmick as long as there is some substance behind that service or feature. A gimmick is a special feature that makes something “stand out” from its contemporaries. However, the special feature is typically thought to be of little relevance or use. If you offer a service or feature that other plan providers don’t offer, just make sure the gimmick is something that plan sponsors could use. A fiduciary warranty that offers a plan sponsor zero protection is a gimmick with a feature that has no use. A good ERISA fiduciary offering substantive §3(16) or 3(38) services are offering a gimmick with a feature that plan sponsors could actually use.

My flat fee approach to billing my clients is a gimmick, but it’s substantive because my clients have cost certainty rather than the billable hour approach that never seems to have any cap or limit.

The point is that any feature or service that you will use will allow you to stand out among the crowd, just make sure that the gimmick has some substance, so your client doesn’t ask like Clara Peller in those Wendy commercials as to “where’s the beef?”

I sell some stuff on eBay. I’m selling collectibles I no longer want for collectibles I do want (vintage graded sports cards). I set a starting bid and a buy it now price and occasionally I’ll get the eBay member who’ll ask if I’ll sell the product for less than my starting bid. The answer is always no because it’s less than my starting bid and if I wanted to sell the item for $5 less, I would have sold it for $5 less.

The point here is that if you’re the gatekeeper for a plan sponsor if you’re a plan provider, I don’t think it’s right to chisel other plan providers. I’ve been in this business for 19 years and I’ve never asked a plan provider (especially a third-party administrator (TPA)) to take less than what they’ve quoted. Why? I treat people the same way I wanted to be treated and I don’t want people to do that to me especially when a TPA friend of mine consistently tells me that I charge too little. Is saving the plan sponsor an extra $250 going to help the client? Honestly, I think it’s going to tick off-plan providers more than it will get your clients happy.

People may think it’s blasphemy that I suggest that you should save clients money, but getting competitive bids from other plan providers is far better than just trying to chisel plan providers you want to work with. Margins in this business are getting lower and lower and plan providers have set their fees for a reason. There are some great TPAs out there who charge a $10,000 minimum. Rather than trying to undercut their entire fee schedule, I’ll find a TPA that will charge less for a smaller plan. This retirement plan business is all about relationships and the last thing you want to do is develop a relationship among other plan providers that you care less about quality of service and more about squeezing plan providers to lower their schedule of fees.

The Brady Bunch was probably everyone’s vision of what a perfect family was. There two sets of a parent with three children of their own and together they blended the families and everything ended up happily after a 22-minute episode. It might have been fantasy, but the idea is that people should come together and get along.

Businesses need to come together and get along. There can be a Balkanization of a business where there are separate fiefdoms or divisions. I would see that often with law firms where the law firm was brought together by adding solo lawyers together so each lawyer was protective of their client list. I’ve seen that with a third-party administration firm where the compliance department fought with the administration department and when the head of administration took over the entire operation, the compliance department resigned en masse (I saw it all). I had a struggle just getting a client list from a chief operating officer who didn’t want anyone to have one, so I had to create one with administrators who treated their list of clients as some fiefdom.

Businesses lose money by being inefficient and when departments don’t work together, there is less money to make. You don’t need an MBA course to tell you that. I’ve seen so much inefficiency in these types of scenarios and it drives me crazy because I’m a one-lawyer shop. You need to maximize revenue and reduce anything that impedes that. The problem is that medium and small-sized businesses don’t realize how much money they’re leaving on the table by not getting rid of the little kingdoms.

One of the most annoying parts of being an ERISA attorney was the requirement that new retirement plans be adopted by the last day of the Plan Year, making December 31^st a very busy time of year.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act changed that by allowing an employer to adopt a retirement plan after the close of the employer’s taxable year by the due date, including extensions, for filing its tax return for the taxable year,  treating the plan as having been adopted as of the last day of the taxable year.

The Internal Revenue Service (IRS) just provided guidance that if a plan sponsor adopts a plan during the employer’s 2021 taxable year (not later than the due date, including extensions, for filing the employer’s 2020 tax return) for the 2020 taxable year, it won’t be required to file a Form 5500 for 2020. The first Form 5500 required to be filed with respect to the plan will be the 2021 Form 5500.

A plan sponsor will have to to check a box on the 2021 Form 5500 indicating that it elects to treat the plan as retroactively adopted as of the last day of its 2020 taxable year. However, if the plan is a defined benefit plan, the employer will have to attach a 2020 Schedule SB to the 2021 Form 5500 or Form 5500-SF, in addition to a 2021 Schedule SB.

Retirement plan services provider FPS Group has changed its name to IPX Retirement.

FPS Group has been a strong supporter of That 401(k) Conference, appearing at most of our events, and will be part of That 401(k) National Virtual Conference on January 27-28, 2022.

IPX Retirement specializes in recordkeeping solutions for non-profit organizations, higher education, and faith-based institutions, municipalities, and other non-profit organizations that manage 403(b), 457,  or similar retirement plans for their employees. The firm is also a leading provider of force-out IRA solutions for all types of retirement plans.

Solo 401(k) plans were a great opportunity for owner-employees to offer a plan for themselves (as well as their spouse).

The only problem is that they can be a disaster because of the lack of support most custodians give to their plan. Many of these plans may have missing plan documents, a lack of a signed document, and a lack of a restatement. Some of these plans could also have an issue regarding missing Form 5500s if the plan has more than $250,000 in assets and the solo owner didn’t realize there was a requirement.

If you have a solo 401(k) plan with zero help, it does make sense to have your plan looked at.

My latest article for JDSupra.com can be found here.